WASHINGTON—Treasury Secretary Timothy Geithner said Tuesday that he expects the deficit reduction and tax reform debates will end with results that resemble the recommendations made by the Bowles-Simpson report.
That report from the President’s 2010 National Commission on Fiscal Responsibility and Reform, published in December 2010, suggested scaling back or eliminating tax expenditures and contained as an illustrative example a proposal to eliminate tax-exemption for new municipal bonds.
The commission was led by Democrat Erskine Bowles, former chief of staff to President Bill Clinton, and Republican Alan Simpson, former U.S. senator from Wyoming.
“I think it is very likely that this debate will end on terms very similar” to the report’s overall recommendations, Geithner said here at a fiscal summit hosted by the Peter G. Peterson Foundation.
Geithner also said he expects the United States will hit the $16.394 trillion federal debt ceiling at the end of 2012, but can extend that deadline to early 2013 with certain tools.
The Treasury Department has told lawmakers it can take several steps to limit debt, including halting the availability of state and local government series securities that municipal issuers use for advance refunding escrows.
Last year, when Republicans and Democrats were at loggerheads over raising the debt ceiling, the Treasury was forced to implement a series of financial and bookkeeping maneuvers to buy additional time before facing the prospect of a default.
One of the first steps the Treasury typically takes is to stop issuing SLGS. It has closed the SLGS window seven times in recent years to avoid reaching the debt limit and to give Congress additional time to raise the limit.
If the Treasury employs such extraordinary measures to avoid hitting the debt ceiling, it could separate the timing of the debt ceiling fight from the expected debate over whether to extend a host of expired and expiring tax provisions, including muni provisions and the Bush tax cuts to avoid a “taxmageddon.”
Separately, Geithner said that JPMorgan’s recent $2 billion trading loss was a “pretty significant risk-management failure” that helps make a strong case for tougher rules on financial reform. Geithner said he hasn’t talked with JPMorgan chief executive officer Jamie Dimon since the loss was announced last week.
“We are going to work very hard to ensure that these reforms are tough and effective, not just the Volcker rule, but the broader complementary reforms on capital and liquidity and derivatives markets,” he said. “So when firms make mistakes, which is inevitable, those mistakes don’t put at risk the broader fortunes, the broader health, the broader security of the economy as a whole.”
Geithner also warned House Speaker John Boehner, R-Ohio, not to play with the debt ceiling like last summer.
“This commitment to meet the obligations of the nation, this commitment to protect the creditworthiness of the country, is a fundamental commitment that you can never call into question or violate,” he said. “We hope [members of Congress] do it without the drama and pain and damage they caused the country last July.”
In his own remarks, Boehner insisted any debt ceiling increase must be exceeded by spending cuts and other budget reforms.
“When the time comes, I will again insist on my simple principle of cuts and reforms greater than the debt limit increase,” Boehner said. “This is the only avenue I see right now to force the elected leadership of this country to solve our structural fiscal imbalance.”
Boehner issued a similar warning the same time last year when he addressed the Economic Club of New York. “Just so we’re clear, I’m talking about real cuts and reform — not these tricks and gimmicks that have given Washington a pass on grappling with its spending problem,” he told those attending the summit.
“We shouldn’t dread the debt limit,” he said. “We should welcome it. It’s an action-forcing event in a town that has become infamous for inaction.”
Sen. Chuck Schumer, D-N.Y., quickly pounced on Boehner’s announcement, calling it “galling.”
“The last thing the country needs is a rerun of last summer’s debacle that nearly brought down our economy,” Schumer said in a press release. Last summer, Congress and the White House made an 11th-hour deal to avert a default that resulted in the Budget Control Act, which calls for $2.1 trillion in automatic spending cuts.
Boehner also said that the Republican-controlled House will vote on a bill before the November election “to stop the largest tax increase in American history,” referring to the expiration of the Bush tax cuts. The bill would establish “an expedited process by which Congress would enact real tax reform in 2013.”
“This will give Congress time to work on broad-based tax reform that lowers rates for individuals and businesses while closing deductions, credits and special carve-outs,” Boehner said.
House Ways and Means chairman Rep. Dave Camp, R-Mich., will work out the details, but if done right, this would be the last time Congress would have to confront the uncertainty of expiring tax rates, Boehner said.
Meanwhile, some Democrats at the fiscal summit, including Reps. Chris Van Hollen of Maryland and Xavier Becerra of California, said there is no way to resolve the deficit problem without resolving the tax system and raising revenues.
“We can’t get unstuck here in Washington, D.C., because of the word taxes,” Becerra said, adding that if lawmakers eliminated tax expenditures, they could deal with a lot of the imbalance in the tax code.
Van Hollen, ranking member on the House Budget Committee, said Democrats have embraced the Bowles-Simpson report as a useful framework for compromise on the deficit and tax reform.
